Europe: The New German Nightmare Begins
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  • dearieme

    It’s always potentially misleading to write things such as “As the Italians scrambled…”. You really mean “As some Italians scrambled…”.

  • dearieme

    And also “He is going to fight for his country’s interests as he sees them,…” is not very likely – he is an Italian after all. Try “He is going to fight for his own interests as he sees them…”.

  • Kris

    “If you owe the bank ten billion dollars, the bank is in trouble.”

    And if you owe the bank 100 billion, the bank’s country is in trouble.

    “in the battle to decide the future of the eurozone, Italy has the equivalent of a nuclear weapon. Italy’s economy is so big, and its debts are so large, that it can always threaten to blow up the eurozone by collapsing.”

  • LarryD

    The Wiemar hyperinflation left scars on the German psyche that persist to this day. tThe German people will not tolerate politicians who permit any significant inflation in any German currency. There isn’t enough hard currency in the world to bail out Italy, so the EuroZone will not survive intact.

    To Paraphrase Margret Thacher, They’ve run out of other peoples money.

  • Mrs. Davis

    Am I the only reader who isn’t an English teacher?

  • Is anyone in America, besides Professor Mead, paying attention to any of this?

    Beuller? … Reid, Pelosi, Boehner, Beuller, anyone…?

    What’s playing out in Europe, running out of other people’s money, will happen here.

  • Eurydice

    Everybody acts as if “Italian technocrat” is some kind of new species, but the Italian technocrats are the ones who’ve kept the country clicking along all these decades while the political class has been putting on its chaotic show.

    And why shouldn’t Monti play tough? The Germans aren’t innocents in this – they’re guilty of their own brand of delusion and their own brand of business chicanery – not to mention their lack of attention to the activities of their own banks. Plus, the German national honor was bound up in the Deutschmark and now they’ve transferred that worship to the Euro, but to others in Europe the Euro is just another piece of currency – they’ve got other measures of national identity

  • Jbird

    I have yet to be convinced that allowing banks to fail is such a bad thing. Maybe if a couple German banks folded, other institutions would stop loaning the Italy’s of the world all that money. Re-institute sane limits on governments’ ability to fund deficit spending for non-essential, peacetime luxuries.

  • Drew Craft

    The phrase I remember is (please adjust for inflation) “If you owe the bank 10 thousand dollars, the bank owns you. If you owe the bank 10 million dollars, you own the bank.”

  • Mark in Texas

    Not to dispute the main points of the article but it was the Austro-Hungarian Foreign Minister who astonished the world with his ingratitude in the first decade of the 20th century when he screwed the Russians in a diplomatic initiative involving the declining Ottomans and the British. To cut to the chase, the bad feelings that resulted from that deal go a long way to explaining why the Russians acted the way they did in the summer of 1914.

  • Jim.

    “We will not be ruled by those whose manners and customs are foreign to us.”

    Considering that this is the only statement upon which the Germans and Italians can agree, things do not look good for European unity.

    The Eurozone is going to break up, possibly before the US’s fall election. At that point we would see whether Mead’s prediction that people would cling to Obama as a known quantity, or the prediction of many others on this site (that America would profoundly reject Obama’s Eurosocialism) will win out. Or perhaps Mead is playing a deeper game, avoiding encouraging Obama in any futile attempt to bail out Europe, fearing that that would lead to America’s collapse right along with Europe.

  • Jacksonian Libertarian

    As Drew Craft points out above, this quote is wrong
    “If you owe the bank ten million dollars,” as they say, “the bank is in trouble. If you owe the bank ten billion dollars, the bank is in trouble.”
    as you have used “The bank is in trouble” twice, when the first should have been “You are in trouble”
    Also, as I have said before, the force tearing the Euro and EU apart, are far stonger than the political duck tape holding them together.

  • Luke Lea

    I’d like to see the European Central Bank print money too. A few years of 5-to-6 percent inflation would do much to restructure sovereign debts, deficits, entitlements, and wages. We might have to do something like that here at home too.

  • Kris

    [email protected]: For the sake of discussion, let us assume that this is a good idea in principle. But in practice, do you think there is any chance of, say, Europe’s strong worker unions agreeing to their wages not keeping pace with inflation. Instead of your orderly inflation Rx, we are more likely to see the standard endemic inflation, creeping always higher and solving little.

  • Jim.

    @Luke Lea:

    Inflation would restructure the life savings of a number of people, too, as well as restructure the assets of banks that hold mortgages whose interest was less than 5-6%.

    The best things you can do for an economy are encourage its participants to be virtuous — hardworking, productive, prudent, and honest — and allow it to be free.

  • Dan M.

    Well, the US does remember the Great Depression well. Like Germany, the US was a mass exporter, and had a solid looking ecconomy, with little government spending in the ’20s. The German suggestion for a solution was tried from ’29 through the winter of ’33. As a result, we had deflation, over a 25% drop in GDP and 25% unemployment. The Germans have been an manufacturing powerhouse by having banks that lent money to people to buy German goods they can’t afford. In the future, when old Germans are the overwhelming buyers of German goods (in the future, there will be few young Germans), the German ecconomy will shrink decade by decade.

    The US has large problems. But, if the Bush tax cut is allowed to expire and payments to the medical industry are, somehow, not maintained at insane levels as a result of lobbying, then they are solveable. The problems of a dying Europe are virtually insolveable. Think of 20 years from now, when Europe is shrinking, with only 2 workers for everyone on a pension. Where will anything come from?

  • don

    Hum, doesn’t basic physics apply here, as in water seeks its lowest level? And then there’s the political economics, only the scum rise to the top in a boiling pot. Americans shouldn’t be surprised given its southern border.

  • Snorri Godhi

    “[Merkel’s] intervention in Italian politics is widely credited for forcing Silvio Berlusconi […] out of office and paving the way for Mario Monti, Italy’s current PM.”

    IS it?? could you please support this assertion with links or references where we can find cogent arguments for it?

    As far as I know, the 2 main factors in Berlusconi’s downfall were the financial markets and the Northern League, neither of which is likely (to put it mildly) to be manipulated by Mrs Merkel or any other eurozone leader, or by the EU.

    I’d also like to note that Merkel is the ruler of Germany, but nothing more: the Dutch, the Austrians, the Finns, the Slovaks, the Estonians can decide to leave the eurozone at any time if it no longer looks good for them, and how is Merkel going to stop them?

    BTW people unfamiliar with Italian political culture will not be aware that, in Italy, “technocrat” is a word of praise, due to the profound contempt that Italians have for their political class.

  • Kris

    [email protected]: “The German suggestion for a solution was tried [in the U.S.] from ’29 through the winter of ’33.”

    The German suggestion is to raise spending by 50%???

  • Dan M.

    Percentages are somewhat misleading when the beginning figure is so low. In ’29, government spending was under 4% of GDP. Even the New Deal, which raised spending to about 9% of GDP wasn’t enough. I was thinking more of the tight money policies of the US government during that period. The actions of Hoover, as championed by his treasury secretary, Mellon who wanted to “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate….It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.”

    Now, it’s true that after Mellon resigned as Treasury secretary in ’31, his policies started to erode, and Federal spending did rise noticably in ’32. But, it wasn’t enough. Even the New Deal wasn’t enough, it took the spending on WWII (spending on things with no inherent eccononmic use) to get the US out of the Depression. I think there is a lot of Mellon in today’s Germany. But, the starting point is different, IIRC, German public spending is near 40% of GDP, not 4%.

  • Hank

    There are a few things to be said:

    1.The Spiegel article isn’t as “bad” as Mead wants one to believe. Mainly written by a German with a German outlook it is understood that nothing will really threaten the Franco-German bond. The EU (as Germans and French understand it) is dead without the fundamental understanding between Paris and Berlin. And the Spiegel doesn’t like Merkel anyway.

    2. The deeply ingrained fear of inflation will at least last for another generation in Germany. It will at least last for as long as those who grew up with their grandparent’s stories of the hyperinflation are in power.

    3. “Merkel’s astounding discovery ,as the German magazine Der Spiegel reports, is that the Italians are no more interested than they ever were in behaving like good Germans.” That sentence is so stupid it defies comment. Germans and Italians deal with each other for more than 2000 years.

    4. To Jbird’s comment: it’s a bigger problem for French banks than for German banks. French banks are a lot more exposed.

    5. DanM wrote: “The Germans have been an manufacturing powerhouse by having banks that lent money to people to buy German goods they can’t afford. In the future, when old Germans are the overwhelming buyers of German goods (in the future, there will be few young Germans), the German ecconomy will shrink decade by decade.”
    The private debt is hugely less in Germany than in the US. Germans just don’t borrow that much money to “buy German goods they can’t afford”. The German economy is not driven by private consumption but by exports. That’s one of the problems of the German economy: since the exports are depending so much on currency exchange rates and other factors outside of Germany’s reach Germany is vulnerable to these factors. A stronger national private consumption would mitigate this vulnerability.

  • Dan M.

    @Hank The people I referred to as buying things they can’t afford are the non-German members of the EU. The loans of German banks facilitated this. Plus, Germany didn’t have the rules on reserve capital that the US had, so Deuchbank could be leveraged 40-1.

    In the future, there will not be the market in Italy, Greece, etc. for German goods that the people couldn’t afford. Thus, as you say, Germany will have to be self sustaining. But, it can’t….Octogenarians don’t produce much, the burden of German pensions on a dwindeling work force will be overwhelming. And, Germany, unlike the US, would rather decline than become multicultural. So, the point is that Germany had high GDP because it’s banks gave money to the Greeks, etc. to buy German goods. Now that has ceased, Germany will be in long term ecconomic decline. There will be years of growth, but decade to decade, the ecconomy will be in recession.

  • Karol

    “In the future, there will not be the market in Italy, Greece, etc. for German goods that the people couldn’t afford. Thus, as you say, Germany will have to be self sustaining.”

    I think you are underestimating German exports. If Greeks and Italians can`t afford German good anymore, Germany will increase her efforts to export goods to Asia. They are already very successful in that regard.

    And if Italians, Greeks and Spaniards don`t have jobs in their home countries, then they will move to Germany and get a job there – something they did before the euro was introduced. And if the euro fails more and more people from Southern Europe will look for jobs in Germany. Hence, I doubt that the German population will decline as much as economists predict.

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